Steadfast Ins. Co. v. Essex Portfolio LP

• Decision Date: 20 August 2021
• Docket Number: 21-cv-02756-JSC
• Court: U.S. District Court — Northern District of California
• Parties: STEADFAST INSURANCE COMPANY, Plaintiff, v. ESSEX PORTFOLIO LP, Defendant.

STEADFAST INSURANCE COMPANY, Plaintiff, v. ESSEX PORTFOLIO LP, Defendant.

No. 21-cv-02756-JSC

United States District Court, N.D. California

August 20, 2021

ORDER RE: MOTION TO DISMISS, AND ORDER TO SHOW CAUSE

Re: Dkt. No. 13

JACQUELINE SCOTT CORLEY United States Magistrate Judge

Before the Court is Steadfast's motion to dismiss Essex's counterclaim in this insurance coverage dispute action.^[1] (Dkt. No. 13.)^[2] After carefully considering the parties' briefing, and having had the benefit of oral argument on August 19, 2021, the Court GRANTS the motion. For related reasons, the Court ORDERS Steadfast to SHOW CAUSE as to why its declaratory judgment claim should not be dismissed without prejudice as unripe.

BACKGROUND

BRE Properties, Inc. undertook a development project in San Francisco, California and purchased insurance from Steadfast. Two firms, McLarand Vasquez Emsiek & Partners Inc. and Cross 2 Design Group, provided design services for the project. BRE later transferred the project to Essex. In May 2016, Essex notified the design firms about potential problems with the project's roofs, and then contacted Steadfast about the issues in September 2016. In April 2019 Essex filed suit against the design firms for breach of contract and negligence in designing the project. See Essex Portfolio, LP v. Suffolk Constr. Co., Inc., No CGC19575609 (Cal. Super. Ct. filed Apr. 30, 2019).^[3] Essex informed Steadfast about the lawsuit in August 2020. The insurance policy between Steadfast and BRE includes the following:

The Company shall indemnify you for “loss” in excess of the “Design Professional's Insurance”, subject to the provisions of the Limit of Liability and “Self Insured Retention” designated in Items 3. and 4. of the Declarations, respectively, provided that:

1. The “Protective Indemnity Claim” is first made by you against the “Design Professional” under contract to you and reported in writing by you to us during the Policy Period or Extended Reporting Period, if applicable;

2. The “Protective Indemnity Claim” arises out of a negligent act, error or omission of the “Design Professional” in the rendering or failure to render “Professional Services” and the negligent act, error or omission took place on or after the “Retroactive Date” and before the end of the “Policy Period”[.]

(Dkt. No. 1 ¶ 21; Dkt. No. 8 at 4-5 ¶ 21.) The policy defines “Design Professional” as “those persons or entities or successors professionally qualified to perform ‘Professional Services' either itself or through the services of a subcontractor or subconsultant at any tier.” (Dkt. No. 1 ¶ 22.)^[4]“Design Professional's Insurance” means “all professional liability policies insuring the ‘Design Professionals' under contract to you.” (Dkt. No. 1 ¶ 23; Dkt. No. 8 at 5 ¶ 23.) “Design Professional's Insurers” means “all the Insurers providing insurance to the ‘Design Professionals' under contract to you.” (Dkt. No. 1 ¶ 24; Dkt. No. 8 at 5 ¶ 24.) “Loss” means:

[T]he amount you are legally entitled to recover from a “Design Professional(s)” either by adjudication by a court of competent jurisdiction, arbitration or settlement or any other method of dispute resolution to which we agree in writing. Such “Loss” must be the result of a negligent act, error or omission on the part of the “Design Professional(s)” in the rendering of or failure to render “Professional Services”. “Loss” does not include any amounts deemed uninsurable by law.

(Dkt. No. 1 ¶ 25; Dkt. No. 8 at 5 ¶ 25.) “Protective Indemnity Claim(s)” means “a written demand by you against the ‘Design Professional' under contract to you seeking a remedy and alleging liability or responsibility on the part of such ‘Design Professional' arising from a negligent act, error or omission in the performance of ‘Professional Services'.” (Dkt. No. 1 ¶ 28; Dkt. No. 8 at 5 ¶ 28.) The policy includes the following “Notice of Protective Indemnity Claim” provision:

As a condition precedent to Coverage Part A - Protective Indemnity Claims of this policy, you shall provide us with notice in writing of a “Protective Indemnity Claim” at the same time that you make such “Protective Indemnity Claim” against a “Design Professional”.

(Dkt. No. 1 ¶ 29; Dkt. No. 8 at 5 ¶ 29.) Finally, the policy states under “Action Against Us”:

As to Coverage Part A - Protective Indemnity Claims, no legal action may be brought against us until there has been full compliance with all the terms and conditions of this policy and both the “Design Professional's” liability and the amount of the “Design Professional's” obligations to pay have been finally determined either by judgment against the “Design Professional” after an actual trial, adjudication or arbitration or by your written agreement with the “Design Professional” with our prior approval. No. person or organization has a right under this policy to bring us into any action to determine our liability or the “Design Professional's” liability.

(Dkt. No. 1 at 24-25; see Dkt. No. 8 at 13 ¶ 10.)

Steadfast filed this action against Essex, seeking a declaratory judgment that coverage is precluded because a “Protective Indemnity Claim” was not timely made or reported and BRE failed to obtain Steadfast's consent to assign BRE's interests to Essex. (Dkt. No. 1 ¶¶ 33-53.) Essex answered and counterclaimed for breach of insurance contract and breach of the implied covenant of good faith and fair dealing. (Dkt. No. 8 at 11-15 ¶¶ 1-18.) Steadfast moves to dismiss the counterclaim as unripe. (Dkt. No. 13.) Essex opposes and requests that if the Court dismisses Essex's counterclaim it also sua sponte dismiss Steadfast's complaint or stay both the complaint and counterclaim. (Dkt. No. 17.)

DISCUSSION

“The constitutional component of ripeness is a jurisdictional prerequisite.” United States v. Antelope, 395 F.3d 1128, 1132 (9th Cir. 2005). “The Article III case or controversy requirement limits federal courts' subject matter jurisdiction by requiring, inter alia, . . . that claims be ‘ripe' for adjudication. . . . [R]ipeness is a means by which federal courts may dispose of matters that are premature for review because the plaintiff's purported injury is too speculative and may never occur.” Chandler v. State Farm Mut. Auto. Ins Co., 598 F.3d 1115, 1122 (9th Cir. 2010) (citations omitted). Ripeness may be properly raised in a Rule 12(b)(1) motion to dismiss. Id. “The central concern of the ripeness inquiry is whether the case involves uncertain or contingent future events that may not occur as anticipated, or indeed may not occur at all.” Id. at 1122-23 (internal quotation marks and citations omitted). Therefore, the doctrine is “designed to prevent the courts, through avoidance of premature adjudication, from entangling themselves in abstract disagreements.” Thomas v. Anchorage Equal Rights Comm'n, 220 F.3d 1134, 1138 (9th Cir. 2000) (internal quotation marks and citation omitted).

I. Essex's Breach of Contract Claim

Essex's counterclaim alleges that Steadfast has breached the contract by “wrongfully refusing to provide the full benefits of coverage, ” specifically by “inform[ing] Essex that there was no coverage under the Policy” related to Essex's lawsuit against the design firms and by “refus[ing] to provide Protective Indemnity Claim coverage promised by” the policy. (Dkt. No. 8 at 12-13 ¶¶ 11, 7, 8.)

The breach of contract claim is unripe because the conditions precedent to Steadfast's performance have not been satisfied. For a Protective Indemnity Claim, the policy states that Steadfast “shall indemnify you for ‘loss' in excess of the ‘Design Professional's Insurance.'” (Dkt. No. 1 ¶ 21; Dkt. No. 8 at 4-5 ¶ 21.) A “loss” requires an adjudication or a settlement with the Design Professionals. (Dkt. No. 1 ¶ 25; Dkt. No. 8 at 5 ¶ 25.) Since Essex has not alleged and cannot allege that it has obtained a judgment or settlement against the Design Professional, there has been no “loss” within the meaning of the insurance policy. Essex's allegations do not establish that it is currently “legally entitled to recover” any “amount” from the Design Professionals. (Dkt. No. 1 ¶ 25; Dkt. No. 8 at 5 ¶ 25.) Thus, Steadfast's duty to “indemnify” for “loss” has not arisen. And the duty may never arise: Essex might not prevail in its suit against the Design Professionals, or it might win a judgment that is fully covered by the Design Professionals' Insurance with no “excess” for Steadfast to indemnify. (Dkt. No. 1 ¶ 21; Dkt. No. 8 at 4-5 ¶ 21.) That uncertainty renders the breach of contract claim premature at this time. Chandler v. State Farm Mut. Auto. Ins. Co., 598 F.3d 1115, 1122 (9th Cir. 2010) (“[T]he plaintiff's purported injury is too speculative and may never occur.”); see Tarakanov v. Lexington Ins. Co., 441 F.Supp.3d 887, 898 (N.D. Cal. 2020) (“[Insureds'] claim is that [insurer] had an obligation to acknowledge its obligation to reimburse, or put differently, accept the plaintiffs' hypothetical claim. This theory does not plausibly establish a breach of contract.”).

In its opposition, Essex argues that Steadfast's failure to reasonably settle the lawsuit against the design firms is an actionable breach. Bodenhamer v. Superior Court, 238 Cal.Rptr. 177, 179-81 (Cal.Ct.App. 1987). But Essex's counterclaim provides no specific allegations about efforts to settle the lawsuit and Steadfast's conduct in that process. See Planet Bingo LLC v. Burlington Ins Co., 276 Cal.Rptr.3d 348, 354-57 (Cal.Ct.App. 2021); Howard v. Am. Nat'l Fire Ins. Co., 115 Cal.Rptr.3d 42, 66 (Cal.Ct.App. 2010) (“An insurer does not breach the duty to settle if it never had an opportunity to settle.”). Moreover, unreasonable failure to settle typically gives rise to a breach of contract claim only after the...